Rental prices soar to another new high as first-time buyers struggle to get on the property ladder

The average property rental price in England and Wales has increased for the fourth month in a row in July to £725, the highest level ever recorded, a study has revealed.

Lettings network LSL Property Services in its monthly rental survey found the £725 cost surpassed the previous high of £720 recorded in October last year.

The rises mean the pace of annual rental inflation has also increased, climbing to 2.9 per cent from 2.4 per cent in June - that stands in contrast to house prices, which were down 2.6 per cent annually in the same month, according to Nationwide.

Finding it tough: An increasing number of potential first-time buyers are stuck on in rental market as big deposits and strict mortgage lending criteria is making it hard to purchase a home

Those that rent in London have seen the fastest annual increase. Rents climbed by a
mammoth 4.8 per cent in the last year with the average renter in the
capital paying an eye-watering £1,057 a month.

This
is more than double the cost in the North East, where monthly rental
prices have increased by a far smaller 0.6 per cent in the last year to
reach £522 per month.

LSL has put the rental rises down to ‘fierce competition,’ from frustrated would-be home buyers as the market enters its summer peak.

It comes as the private rental sector has seen a surge in demand as first-time buyers struggle to get on the property ladder, with problems raising a hefty enough deposit and meeting lenders’ stricter borrowing criteria.

Several mortgage lenders have stepped up competition recently by cutting some of their rates, but much of this has been aimed at less ‘risky’ people with larger amounts of equity.

Borrowers with smaller deposits are expected to have a tougher time taking out a deal amid the uncertain economy.

The gulf in mortgage rates depending on deposit size has been highlighted by the arrival of a slew of ultra-low rate five-year fixed rate mortgages for those with 40 per cent deposits, at less than three per cent, from Santander and NatWest.

Meanwhile a borrower with at least 10 per cent to put down can get a best five-year fix at 4.99 per cent, from First Direct.

Average rents: The cost of renting has soared in the last three years as an increasing number are stuck when it comes to getting on the property ladder

David Newnes, director of LSL Property Services, said: ‘The backlog of frustrated first-time buyers in the private rented sector showed no sign of clearing in July - in fact, it is still growing.

‘As lending to those without substantial deposits remains depressed, demand for rented accommodation can only go one way in the long-term - providing further upwards momentum for rents.

‘The rental market is also entering its summer peak, as recent graduates and those with new jobs begin to look for new accommodation.

‘With more tenants on the move, alongside long-term underlying demand, fierce competition for properties is enabling landlords to increase rental prices to new highs.’

Rents grew fastest on a monthly basis in South East

On a monthly basis, rents in the South East climbed the fastest, increasing by 2.2 per cent to reach £746.

Rents fell on an annual basis in two regions, decreasing by 1.2 per cent in the South West, and 0.4 per cent in the East Midlands to reach £629 and £546 respectively.

The only regions to see month-on-month falls were the South West and the East of England, which both saw a 0.4 per cent drop. Rents in the East of England fell to an average of £740.

Meanwhile, rents in Wales rose by 1.2 per cent on a monthly basis and by 0.8 per cent year-on-year to reach £552.

Regional rent: London is the most expensive place to rent a property, costing more than £300 more a month than the next nearest region

We’re turning into a nation of more renters

The number of people owning their home has dropped in the last ten years. Figures earlier in the year showed owner-occupation has fallen to 66 per cent of all households in England – the same level as 1989.

At the same time, the number renting their homes from landlords has increased to 34 per cent.The level of owner occupation has been dropping since 2005, after reaching a peak of 70.9 per cent in 2003.

It comes as the number of new homes started by builders in England has fallen to the lowest level for three years – Government figures revealed that only 21,540 homes were started between April and June 2012.

This figure is down 24 per cent on this time last year and a 10 per cent drop from the first three months of the year.

Average rental yields at its highest level this year

Landlords saw an average total annual return of 4.5 per cent on a rental property in July, according to LSL.

This represents an average return of £7,459 with rental income of £7,763 and a capital loss of £305.

If property prices maintain the same trend as the last three months, an average investor in England and Wales could expect to make a total annual return of 8.3 per cent property over the next 12 months – equivalent to £13,647 per property.

Following the rapid increase in rents, the average yield on a rental property increased to 5.3 per cent in July, its highest level in 2012, and an increase from 5.2 per cent in June.

Tenant finances also deteriorated for a second consecutive month in July amid the pressure on household budgets due to the tough economy and increased rents, with 9.3 per cent of all rent late or unpaid at the end of the month, an increase from 9.2 per cent in June.